What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-01 compared with 2023-02-28 · 160 added, 178 removed, 371 unchanged (48% of the section changed)

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We have transformed the luxury consignment experience by removing the friction and pain points inherent in the traditional consignment model.

For consignors, we offer concierge at-home consultation and pickup, and meetings with consignors via online face-to-face platforms, or virtual consultations.

For consignors, we offer concierge at-home consultation and pickup as well as virtual consultations via online face-to-face platforms.

Consignors may also drop off items at our luxury consignment offices.

Our Flagship and Neighborhood Stores provide an alternative location to drop off consigned items and an opportunity to interact with our authentication experts.

Our Neighborhood and Flagship Stores provide an alternative location to drop off consigned items and an opportunity to interact with our authentication experts.

Consignors may also utilize our complimentary shipping directly to our authentication centers.

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Take rates vary depending on the total value of goods sold through our online marketplace on behalf of a particular consignor as well as the category and price point of the items.

In 2022 and 2021, our take rate on consigned goods was 36.0% and 34.7% respectively.

The increase in our take rate was due to the larger sales mix of higher take rate categories such as women's apparel.

In 2023 and 2022, our overall take rate on consigned goods was 37.5% and 36.0% respectively.

The increase in our take rate was due to the update of our consignor commission structure (effective November 1, 2022).

Additionally, we earn revenue from our subscription program, First Look, in which we offer buyers early access to the items we sell in exchange for a monthly fee.

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Through December 31, 2023, we have cumulatively paid approximately $4.0 billion in commissions to our consignors.

Our GMV increased to $1.8 billion in 2022 from $1.5 billion in 2021.

Our AOV decreased to $483 in 2022 from $497 in 2021.

In 2022 and 2021, our total revenue was $603.5 million and $467.7 million, respectively, representing an increase of 29% in 2022.

Our GMV decreased to $1.7 billion in 2023 from $1.8 billion in 2022.

Our AOV increased to $523 in 2023

Table of C ontents

from $483 in 2022.

In 2023 and 2022, our total revenue was $549.3 million and $603.5 million, respectively, representing a decrease of 9% in 2023.

In 2023 and 2022, our gross profit was $376.3 million and $348.7 million, respectively, representing an increase of 8% in 2023.

Impact of COVID-19 and Macroeconomic Conditions on Our Business

The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years.

Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers.

Impact of Public Health Emergencies and Macroeconomic Conditions on Our Business

The impact of public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases such as the COVID-19 pandemic has affected, and may continue to affect our business and results of operations.

During any public health emergency, our top priority is to protect the health and safety of our employees and our customers.

Macroeconomic uncertainty and inflationary pressure have and may in the future drive lower demand for the end customer and increase costs of labor and shipping.

Recent Business Developments

On February 15, 2023, we announced a savings plan intended to reduce operating expenses by (a) terminating approximately 230 employees (the “RIF”), representing approximately 7% of our workforce, and (b) reducing our real estate presence (the "Real Estate Reduction Plan") by (i) closing two flagship stores (San Francisco, California and Chicago, Illinois), two neighborhood stores (Atlanta, Georgia and Austin, Texas), and two luxury consignment offices (Miami, Florida and Washington, D.C.), including any co-located logistics hubs, and (ii) reducing our office spaces in San Francisco, California and New York, New York.

We will continue to evaluate our real estate presence as we deem appropriate to create efficiencies and to address trends in the marketplace and macroeconomic factors.

We may not be able to fully realize the cost savings and benefits initially anticipated from the RIF or Real Estate Reduction Plan, and the expected costs may be greater than expected.

See “Risk Factors—Risks Related to Our Business and Industry— Our reduction in workforce and the associated real estate reduction plan may not result in anticipated savings, could resul t in total costs and expenses that are greater than expected and could disrupt our business.

Business Developments

On February 15, 2023, we implemented a savings plan intended to reduce operating expenses by (a) terminating approximately 230 employees, representing approximately 7% of our workforce, and (b) reducing our real estate presence (see Note 10 — Leases, for further information).

We may not be able to fully realize the cost savings and benefits initially anticipated from the savings plan, and the expected costs may be greater than expected.

See “Risk Factors—Risks Related to Our Business and Industry— The savings plan we implemented in February 2023 may not result in anticipated savings, could resul t in total costs and expenses that are greater than expected and could disrupt our business.

Other Factors Affecting Our Performance

Other key business and marketplace factors, independent of the health and economic impact of the COVID-19 pandemic and macroeconomic conditions, impact our business.

Other key business and marketplace factors, independent of the health and economic impact of public health emergencies and macroeconomic conditions, impact our business.

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we focus on the factors described below.

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We attract and retain buyers by offering highly coveted, authenticated, pre-owned luxury goods at attractive values and delivering a high-quality, luxury experience.

We measure our success in attracting and retaining buyers by tracking buyer satisfaction and purchasing

activity over time.

We measure our success in attracting and retaining buyers by tracking buyer satisfaction and purchasing activity over time.

We have experienced higher than average buyer satisfaction, as evidenced by our buyer net promoter score of 51 in 2023, and compared to our online shopping industry average of 45 according to NICE Satmetrix U.S.

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If we fail to continue to attract and retain our buyer base to our online marketplace, our operating results would be adversely affected.

The first graph below shows trends in purchasing activity for buyer cohorts for each year beginning in 2016.

Each coho rt represents all buyers that first purchased across our online marketplace in the designated year and the aggregate GMV purchased by such cohort for the initial year and each year thereafter.

As illustrated in the first graph below, we have seen consistent retention of buyer activity across cohorts through 2022.

The graph below shows trends in purchasing activity for buyer cohorts for each year beginning in 2017.

Each coho rt represents all buyers that first purchased across our online marketplace in the designated year and the aggregate

GMV purchased by such cohort for the initial year and each year thereafter.

As illustrated in the graph below, we have seen consistent retention of buyer activity across cohorts through 2023.

In 2020, buyer retention was impacted by the adverse impacts of COVID-19 on supply, and as a result, GMV.

The second graph below shows the percentage of GMV in each year from our repeat buyers.

GMV from repeat buyers reflects purchases made after their initial purchase month.

We believe there is substantial opportunity to grow our business by having buyers also become consignors and vice versa.

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We closely monitor our efficiency in acquiring new buyers.

Our buyer acquisition cost (“BAC”) for a given period is comprised of our total advertising spend for acquiring both buyers and consignors, which is principally the cost of television, digital and direct mail advertising, divided by the number of buyers acquired in that period.

We adjust or re-allocate our advertising in real-time to optimize our spend across channels, buyer demographics and geographies to improve our return on advertising spend.

With the exception of 2020 due to the adverse impacts of COVID-19 on our business, our BAC has declined over time driven by improving acquisition efficiencies.

Scaling operations and technology.

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We also operate retail stores in several geographies.

In addition to scaling our physical infrastructure, growing our single-SKU business operations require that we attract, train and retain highly-skilled personnel for purposes of authentication, copywriting, merchandising, pricing and fulfilling orders.

In addition to scaling our physical infrastructure, growing our single-SKU business operations requires that we attract, train and retain highly-skilled personnel for purposes of authentication, copywriting, merchandising, pricing and fulfilling orders.

We have invested substantially in technology to automate our operations and support growth, including proprietary machine learning technology to support efficiency and quality.

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As a result of this seasonality, we typically see stronger AOV and more rapid sell-through in the fourth quarter.

We also incur higher operating expenses in the last four months of the year as we increase advertising spend to attract consignors and buyers and increase headcount in sales and operations to handle the higher volumes from increased demand.

Table of C ontents

Key Financial and Operating Metrics

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AOV $ 523 $ 483 $ 497

% of GMV from repeat buyers 84.0 % 83.9 % 83.0 %

GMV represents the total amount paid for goods across our online marketplace in a given period.

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We recognize direct revenue upon shipment of the goods sold, based on the gross purchase price net of allowances for product returns, buyer incentives and adjustments.

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Shipping Services Revenue

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In November 2022, we updated our take rate structure with the goals of optimizing take rate, limiting consignment of lower value items, and increasing supply of higher value items.

We continue to assess the impact of our updated take rate structure and may implement further changes in the future.

Previously, our take rate was primarily based on a tiered commission structure for consignors, where the more they sell the higher percent commission they earn.

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In addition, there were commission exceptions from the tiered commission structure based on category and price point of the items.

Beginning in November 2022, the take rate structure is primarily based on the category and the price point of the sold items.

Our take rate structure is primarily based on the category and the price point of the sold items.

For example, under the updated take rate structure, consignors can earn 20% commission on all sold items under $100, and up to 90% commission on watches sold for over $7,500.

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Our AOV is a key driver of our operating leverage.

Percent of GMV from Repeat Buyers

Repeat buyers represents buyers who made a purchase in the months subsequent to the month they made their initial purchase across our online marketplace and retail stores.

GMV from repeat buyers reflects purchases made after their initial purchase month.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance.

Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes.

Adjusted EBITDA may not be comparable to similarly titled metrics of other companies.

Adjusted EBITDA means net loss before interest income, interest expense, other (income) expense net, provision for income taxes, and depreciation and amortization, further adjusted to exclude stock-based compensation, payroll taxes on employee stock transactions, restructuring charges, CEO transition costs, and certain one-time expenses.

Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we believe are not indicative of our core operating performance.

Adjusted EBITDA is a non-GAAP measure.

Adjusted EBITDA has certain limitations as the measure excludes the impact of certain expenses that are included in our statements of operations that are necessary to run our business and should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP.

The following table provides a reconciliation of net loss to Adjusted EBITDA (in thousands):

Year Ended December 31,

2022 2021 2020

(In thousands)

Adjusted EBITDA Reconciliation:

Net loss $ (196,445) $ (236,107) $ (175,832)

Add (deduct):

Depreciation and amortization

27,669 23,531 18,845

Interest income (3,191) (365) (2,518)

Interest expense 10,472 21,531 5,264

Provision for income taxes 172 56 101

EBITDA (161,323) (191,354) (154,140)

Stock-based compensation (1)

46,138 48,802 24,322

CEO separation benefits (2)

CEO transition costs (3)

Payroll taxes on employee stock transactions 451 1,168 —

Legal fees reimbursement benefit (4)

(1,400) (1,204) —

Legal settlements (5)

456 13,389 1,110

Restructuring charges (6)

896 2,314 514

Other (income) expense, net

(171) (23) 169

Adjusted EBITDA (112,454) (126,908) (128,025)

(1) The stock-based compensation expense for the year ended December 31, 2022 includes a one-time charge of $1.0 million related to the modification of certain equity awards pursuant to the terms of the transition and separation agreement entered into with our founder, Julie Wainwright, in connection with her resignation as Chief Executive Officer ("CEO") on June 6, 2022 (the "Separation Agreement").

(2) The separation benefit charges for the year ended December 31, 2022 consists of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable to Julie Wainwright pursuant to the Separation Agreement.

In addition, see footnote 1 for disclosure regarding the incremental stock-based compensation expense incurred in connection with the Separation Agreement.

(3) The CEO transition charges for the year ended December 31, 2022 consist of general and administrative fees, including legal and recruiting expenses, as well as retention bonuses for certain executives incurred in connection with our founder's resignation on June 6, 2022.

(4) During the year ended December 31, 2022, we received insurance reimbursement of $1.4 million related to a legal settlement expense.

During the year ended December 31, 2021, we received insurance reimbursement of $4.3 million related to legal fees for a certain matter, of which $3.1 million were applied to legal expenses for the year ended December 31, 2021.

(5) The legal settlement charges for the year ended December 31, 2021 reflects legal settlement expenses arising from the settlement of a putative shareholder class action and derivative case.

(6) The restructuring charges for the year ended December 31, 2022 consists of employee severance payments and benefits.

The restructuring charges for the year ended December 31, 2021 consist of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse.

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Components of our Operating Results

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Shipping services revenue excludes the effect of buyer incentives and sales tax.

During the three months ended June 30, 2022, the Company changed its method of accounting for shipping and handling activities.

Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation, as described in Note 2 " Change in Accounting Principle" to the financial statements included herein.

Cost of Revenue

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We expect these expenses to continue to decrease as a percentage of revenue.

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Restructuring

Restructuring expense is primarily comprised of right-of-use asset and fixed asset impairments, severance benefits, and other related charges, including net gain on lease terminations.

Impairment losses are measured and recorded for the excess of carrying value over its fair value, estimated based on expected future cash flows using discount rate and other quantitative and qualitative factors.

The assumptions used such as projected future cash flows, discount rates, and determination of appropriate market comparable, are subject to volatility and may differ from actual results.

Legal Settlement

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We expect to maintain this full valuation allowance for the foreseeable future.

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Results of Operations

The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.

Except as described below, prior year comparisons for 2021 and 2020 are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

However, during the three months ended June 30, 2022, the Company changed its accounting policy from those disclosed in the audited financial statements and related notes for the year ended December 31, 2021 related to shipping services revenue.

Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation, as described in Note 2 "Change in Accounting Principle" to the financial statements included herein.

Year-over-year discussion and analysis of consignment revenue, shipping services revenue, cost of consignment revenue and cost of shipping services revenue are included below for 2021 and 2020 on a reclassified basis.

Prior year comparisons for 2022 and 2021 are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The following tables set forth our results of operations (in thousands) and such data as a percentage of revenue for the periods presented:

22 unchanged sentences

182,453 194,886 176,246

Restructuring 43,462 896 2,314

Legal settlement 1,340 456 13,389

4 unchanged sentences

Interest expense (10,701) (10,472) (21,531)

Other income (expense), net 171 23 (169)

Other income, net

Loss before provision for income taxes (168,189) (196,273) (236,051)

1 unchanged sentence

Net loss $ (168,472) $ (196,445) $ (236,107)

Table of C ontents

Year Ended December 31,

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Selling, general and administrative

Restructuring

Legal settlement — — 3

3 unchanged sentences

Interest expense (2) (2) (5)

Other income (expense), net — — —

Other income, net

Loss before provision for income taxes (31) (33) (51)

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Consignment revenue increased by $30.6 million, or 8%, in 2023 compared to 2022.

The increase in revenue was driven primarily by a 23% increase in GMV, and improvement in our take rate during the year ended December 31, 2022.

GMV growth during the year ended December 31, 2022 was driven by a 26% increase in orders, due to strong market demand for online luxury goods, partially offset by a 3% decrease in AOV.

We believe GMV growth is driven by interest in luxury resale due to increasing consumer desire for more affordable, accessible luxury goods in a sustainable circular economy.

The increase in revenue was driven primarily by an increase in consignment GMV, and improvement in our take rate during the year ended December 31, 2023.

Overall GMV decreased by 5% during the year ended December 31, 2023.

The decrease in GMV is driven by a decrease in direct GMV, partially offset by the increase in consignment GMV.

Returns and cancellations as a percentage of GMV for the year ended December 31, 2023 was 26.4%, compared to 26.5% for the year ended December 31, 2022.

Our take rate increased to 36.0% from 34.7% during the year ended December 31, 2022 compared to last year due to increased contribution from higher take rate products such as women's apparel.

Our take rate increased to 37.5% from 36.0% during the year ended December 31, 2023 compared to last year due to the update of our consignor commission structure which went into effect on November 1, 2022.

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Direct Revenue

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Direct revenue $ 79,160 $ 158,726 $ (79,566) (50) %

Direct revenue increased by $37.9 million, or 31%, in 2022 compared to 2021.

The increase was primarily driven by the sell-through of company owned inventory from previous direct purchases from businesses.

We recognize direct revenue on a gross basis upon shipment of the purchased good to the buyer.

Direct revenue was flat as a percentage of total revenue year over year.

We anticipate direct revenue to decrease as a percentage of total revenue as we have acted to limit the amount of direct purchases from businesses and plan to continue to do so in the future.

Direct revenue decreased by $79.6 million, or 50%, in 2023 compared to 2022.

The decrease was primarily driven by our planned actions to minimize vendor-purchased company-owned inventory as the margin profile of our direct revenue is lower than consignment revenue.

We recognize direct revenue upon shipment of the purchased good to the buyer.

Direct revenue as a percentage of total revenue may vary from period to period primarily based on the amount of consignment revenue.

Shipping Services Revenue

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Shipping services revenue $ 54,572 $ 59,788 $ (5,216) (9) %

Shipping services revenue increased by $15.2 million, or 34%, in 2022 compared to 2021 primarily due to increased shipping rates charged to buyers for outbound and return shipments and the fulfillment of a larger number of orders, which increased 26% in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Shipping services revenue decreased by $5.2 million, or 9%, in 2023 compared to 2022 primarily due to a decrease in the number of orders.

Cost of Consignment Revenue

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Cost of consignment revenue increased by $1.2 million, or 2%, in 2023 compared to 2022.

The increase was primarily attributable to the 27% increase in consignment revenue compared to the prior year, as well as higher credit card fees and overhead costs driven by growth in our business.

Consignment revenue gross margin remained flat in the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily attributable to the 8% increase in consignment revenue compared to the prior year, partially offset by efficiencies in our cost leverage.

Consignment revenue gross margin increased by 81 basis points in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the 8% increase in consignment revenue.

Cost of Direct Revenue

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As a percent of direct revenue 94 % 89 %

Cost of direct revenue increased by $40.2 million, or 40%, in 2022 compared to 2021.

The increase was primarily attributable to the 31% increase in direct revenue compared to the prior year.

Direct revenue gross margin decreased by 5 percentage points in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by strategic liquidation of company owned inventory sold at discounted prices.

Cost of direct revenue decreased by $67.3 million, or 48%, in 2023 compared to 2022.

The decrease was primarily attributable to the 50% decrease in direct revenue compared to the prior year as a result of our planned actions to minimize vendor-purchased company-owned inventory.

Direct revenue gross margin decreased by 467 basis points in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by strategic liquidation of company owned inventory sold at discounted prices, which resulted in the sell through of inventory that was previously reserved.

The margin profile of our direct revenue is lower than the margin profile of our consignment revenue.

Table of C ontents

Cost of Shipping Services Revenue

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As a percent of shipping services revenue 74 % 94 %

Cost of shipping services revenue increased by $8.4 million, or 18%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase is primarily due to the fulfillment of a larger number of orders as well as higher shipping fees.

Shipping service revenue gross margin increased by 13 percentage points in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to increased shipping rates charged to buyers for outbound and return shipments beginning in Q4 2021.

Our total gross margin decreased by 1 percentage point in the year ended December 31, 2022 compared to the year ended December 31, 2021 driven by the decrease in direct revenue gross margin as discussed above.

Cost of shipping services revenue decreased by $15.6 million, or 28%, in the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease is primarily due to a decrease in the number of orders, and due to realizing benefits of cost savings initiatives.

Shipping services revenue gross margin increased by 1,963 basis points in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to decreased costs related to cost savings initiatives.

Total Gross Margin

Our total gross margin increased by 1,072 basis point in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily driven by the increase in higher margin consignment revenue and decrease in lower margin direct revenue.

Gross margin may vary from period to period.

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Marketing $ 58,275 $ 62,988 $ (4,713) (7) %

Marketing expense increased by $0.4 million, or 1%, in 2022 compared to 2021.

The increase was primarily due to increases in advertising costs and marketing program expenses as we seek to optimize the digital experience on our online marketplace and grow the number of buyers and consignors.

As a percentage of revenue, marketing expense decreased to 11% in 2022 from 13% in 2021.

Marketing expense decreased by $4.7 million, or 7%, in 2023 compared to 2022.

The decrease was primarily due to a decrease in advertising costs and lower employee compensation related expenses due to a decrease in headcount.

As a percentage of revenue, marketing remained flat at 11% in the years ended December 31, 2023 and 2022.

These expenses may vary from period to period as a percentage of revenue, depending primarily upon our marketing investments.

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Operations and technology $ 257,041 $ 278,628 $ (21,587) (8) %

Operations and technology expense increased by $43.3 million, or 18%, in 2022 compared to 2021.

The increase was primarily due to higher employee compensation related expenses due to increased headcount to support our growth, and higher inbound consignment shipping costs.

The increase was also attributed to higher amortization associated with capitalized proprietary software.

As a percentage of revenue, operations and technology expense decreased to 46% in 2022 from 50% in 2021.

Operations and technology expense decreased by $21.6 million, or 8%, in 2023 compared to 2022.

The decrease was primarily due to lower employee compensation related expenses due to a decrease in headcount related to the savings plan implemented during 2023.

The decrease was also attributed to lower rent and lease related expenses due to retail store closures related to the savings plan implemented during 2023.

As a percentage of revenue, operations and technology expense increased to 47% in 2023 from 46% in 2022 due to a decrease in direct revenue.

These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

We expect these expenses to continue to decrease as a percentage of revenue over the longer term.

We expect these expenses to decrease as a percentage of revenue over the longer term.

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Selling, General and Administrative

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Selling, general and administrative $ 182,453 $ 194,886 $ (12,433) (6) %

Selling, general and administrative expense increased by $18.7 million, or 11%, in 2022 compared to 2021.

The increase was due to higher employee compensation expenses due to increased headcount, in addition to an increase in cloud and software service fees.

The increase was also driven by costs associated with the resignation of the Company's founder during the year ended December 31, 2022.

As a percentage of revenue, selling, general and administrative expense decreased to 33% in 2022 from 38% in 2021.

Selling, general and administrative expense decreased by $12.4 million, or 6%, in 2023 compared to 2022.

The decrease was due to lower employee compensation expenses due to a decrease in headcount related to the savings plan implemented during 2023.

The decrease was also attributed to lower rent and lease related expenses due to office closures related to the savings plan implemented during 2023.

As a percentage of revenue, selling, general and administrative remained flat at 33% in the years ended December 31, 2023 and 2022 .

These expenses may vary from period to period as a percentage of revenue.

We expect these expenses to decrease as a percentage of revenue over the long term.

Restructuring

Year Ended December 31, Change

2023 2022 Amount %

(In thousands, except percentage)

Restructuring

$ 43,462 $ 896 $ 42,566 4,751 %

Restructuring increased by $42.6 million, or over 100%, in 2023 compared to 2022.

The increase was primarily due to charges to reduce our real estate presence and operating expenses through the closure of certain retail and office locations and workforce reduction.

Restructuring consisted of right-of-use asset impairment charge of $31.1 million, leasehold improvements impairment charge of $8.6 million, employee severance of $3.0 million, and other related charges of $1.5 million, partially offset by a $0.7 million gain on lease terminations.

As of the date of this annual report, the real estate reduction plan we implemented in February 2023 is substantially complete.

Interest Income

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Interest expense $ (10,701) $ (10,472) $ 229 2 %

Interest expense decreased by $11.1 million, or 51%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The decrease was primarily due to the adoption of ASU 2020-06 on January 1, 2022, which eliminated the debt discount related to both the 3.00% convertible senior notes issued in June 2020 and the 1.00% convertible senior notes issued in March 2021.

Interest expense increased by $0.2 million, or 2%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Other Income, Net

3 unchanged sentences

Other income, net $ — $ 171 $ (171) -100 %

Other income increased by $0.1 million, or over 100%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Table of C ontents

Other income decreased by $0.2 million, or 100%, in the year ended December 31, 2023 compared to the year ended December 31, 2022.

Legal Settlement

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Legal settlement $ 1,340 $ 456 $ 884 194 %

Legal settlement expense decreased by $12.9 million, or 97%, in 2022 compared to 2021.

This decrease was primarily due to the $11.0 million legal settlement accrued for during the year ended December 31, 2021 in connection with the settlement of the shareholder class action filed against us and $0.5 million of attorney's fees as part of the settlement for the related derivative case filed against us.

Comparison of 2021 and 2020

As described above, prior year comparisons for 2021 and 2020 are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

However, during the three months ended June 30, 2022, the Company had a change in accounting policy from those disclosed in the audited financial statements and related notes for the year ended December 31, 2021 related to shipping services revenue.

Consignment Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Consignment revenue, net $ 302,221 $ 213,312 $ 88,909 42 %

Consignment and service revenue increased by $88.9 million, or 42%, in 2021 compared to 2020.

The increase in revenue was driven primarily by a 50% increase in GMV, partially offset by an increase in returns and cancellations year over year.

Shipping Services Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Shipping services revenue $ 44,627 $ 34,014 $ 10,613 31 %

Shipping services revenue increased by $10.6 million, or 31%, in 2021 compared to 2020 primarily due to the fulfillment of a larger number of orders, which increased 33% in the year ended December 31, 2021 compared to the year ended December 31, 2020, as well as increased shipping fee introduced in Q4 of 2021.

Cost of Consignment Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Cost of consignment revenue $ 44,985 $ 30,389 $ 14,596 48 %

As a percent of consignment revenue 15 % 14 %

Cost of consignment revenue increased by $14.6 million, or 48%, in 2021 compared to 2020.

The increase was primarily attributable to the 42% increase in consignment revenue compared to the prior year, as well as higher credit card fees driven by growth in our business.

Consignment revenue gross margin decreased by 1 percentage point in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by higher overhead costs due to growth in our business.

Cost of Shipping Services Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Cost of shipping services revenue $ 47,803 $ 36,587 $ 11,216 31 %

As a percent of shipping services revenue 107 % 108 %

Cost of shipping services revenue increased by $11.2 million, or 31%, in the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase is primarily due to the fulfillment of a larger number of orders, as well as an increase in shipping costs from rising prices of fulfillment services during the pandemic.

Shipping service revenue gross margin improved in the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the increase in shipping fees implemented during the three months ended December 31, 2021.

Legal settlement expense increased by $0.9 million, or over 100%, in 2023 compared to 2022.

This increase was primarily due to settlements of two former employees’ individual claims and California Private Attorney General Actions initiated against the Company.

Liquidity and Capital Resources

As of December 31, 2023, we had cash and cash equivalents of $175.7 million and an accumulated deficit of $1,119.6 million.

We had restricted cash of $14.9 million as of December 31, 2023, consisting of cash deposited with a financial institution as collateral for our letters of credit, facility leases and credit cards.

Since our inception, we have generated negative cash flows from operations and have primarily financed our operations through equity and convertible debt financings.

In July 2019, we received net proceeds of $315.5 million upon completion of our IPO on July 2, 2019.

In June 2020, we received net proceeds of $143.3 million from the issuance of the 2025 Notes and the related capped call transactions.

In March 2021, we received net proceeds of $244.5 million from the 2028 Notes and the related capped call transactions.

In June 2020, we received net proceeds of $143.3 million from the issuance of our 3.00% Convertible Senior Notes due 2025 (the “2025 Notes”) and the related capped call transactions.

In March 2021, we received net proceeds of $244.5 million from our 1.00% Convertible Senior Notes due 2028 (the “2028 Notes” and together with the 2025 Notes, the "Notes”) and the related capped call transactions.

On February 29, 2024, we entered into an exchange agreement with certain holders of our Notes (the “Holders” and such agreement the “Exchange Agreement”).

Under the terms of the Exchange Agreement the Holders agreed to exchange $145,751,000 aggregate principal amount of the 2025 Notes and $6,480,000 aggregate principal amount of the 2028 Notes for $135,000,000 aggregate principal amount of our new senior notes due 2029 (the “2029 Notes”, and such transaction the “Exchange”).

Additionally, in connection with the Exchange, we issued warrants to acquire an aggregate of up to 7,894,737 shares of the Company’s common stock to the Holders.

The Exchange was consummated on February 29, 2024.

The 2029 Notes bear cash interest at a rate of 8.75% per annum payable semi-annually in arrears and bear interest at a rate of 4.25% payable in kind.

We expect that operating losses and negative cash flows from operations could continue in the foreseeable future.

We believe our existing cash and cash equivalents as of December 31, 2023 will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months.

Our primary capital requirements include contractual obligations related to our operating leases, payments on our debt, certain non-cancellable contracts and compensation and benefits payments to support our strategic plans.

Our future capital requirements and the adequacy of available funds will depend on many factors, including, but not limited to, those set forth under the heading “Risk Factors” in this Annual Report, and our ability to grow our revenue and the timing of investments to support growth in our business, such as the build-out of our authentication centers.

We believe that our existing cash and cash equivalents as of December 31, 2022 will be sufficient to meet our working capital, capital expenditures and contractual obligation requirements for at least the next 12 months.

The remaining 2025 Notes not exchanged will mature on June 15, 2025, unless earlier redeemed or repurchased by the Company or converted and the remaining 2028 Notes not exchanged will mature on March 1, 2028, unless earlier redeemed or repurchased by the Company or converted.

Our future capital requirements and the adequacy of available funds will depend on many factors, including, but not limited to, those set forth under the heading “Risk Factors” in this Annual Report, and our ability to grow our revenues and the timing of investments to support growth in our business, such as the build-out of our authentication centers and, to a lesser extent, the opening of new retail stores.

We may seek additional equity or debt financing.

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In April 2021, the Company entered into a loan and security agreement (“Revolving Credit Agreement”) with a lender, to provide a revolving line of credit of up to $50 million.

The credit facility expires in April 2023.

The Revolving Credit Agreement contains affirmative, negative and financial covenants, including covenants that require maintaining minimum cash and investment balances over specified periods of time and covenants that restrict, among other things, the Company’s ability to change its name, business, management, ownership or business locations, enter into mergers or acquisitions or incur additional indebtedness.

As of December 31, 2022, the Company was in compliance with all covenants.

As of December 31, 2022, $0 had been drawn on the Revolving Credit Agreement.

For more information on the Revolving Credit Agreement, please see Note 6 of our Notes to Financial Statements included elsewhere in this Annual Report.

As of June 30, 2023, $0 had been drawn on the Revolving Credit Agreement, and the credit facility has expired and was not renewed.

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The following table summarizes our cash flows for the periods indicated.

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Net Cash Used in Operating Activities

During 2022, net cash used in operating activities was $91.6 million, which consisted of a net loss of $196.4 million, adjusted by non-cash charges of $98.2 million and cash inflows due to a net change of $6.7 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily the result of cash inflows due to a decrease in 2022 of $28.0 million in inventory driven by a decrease in direct purchases of inventory from vendors, an increase of $10.5 million in accrued consignor payables, and by a $4.9 million increase in accounts payable, partially offset by a decrease of $17.8 million in operating lease liability and a decrease of $9.8 million in other accrued and current liabilities.

During 2023, net cash used in operating activities was $61.3 million, which consisted of a net loss of $168.5 million, adjusted by non-cash charges of $136.3 million and cash outflows due to a net change of $29.1 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily the result of cash outflows due to a decrease of $26.5 million in operating lease liabilities, a decrease of $4.4 million in consignor payables, an increase of $7.0 million in accounts receivable, and an increase of $3.1 million in other assets, partially offset by cash inflows due to a decrease of $10.9 million in inventory driven by a decrease in direct purchases of inventory from vendors.

Our primary uses of cash in operating activities include operating costs such as operating lease obligations, compensation and benefits, marketing, and other expenditures necessary to support our business growth.

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Net Cash Provided by Financing Activities

During 2022, net cash provided by financing activities was $4.1 million, which primarily consisted of $2.9 million from the exercise of stock options, and $1.4 million from the issuance of common stock related to the Company's employee stock purchase plan (the "ESPP").

During 2023, net cash provided by financing activities was $0.2 million, which primarily consisted of $0.9 million of proceeds from the issuance of common stock related to the Company's employee stock purchase plan, partially offset by $0.7 million of taxes related to restricted stock units vesting.

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Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance.

Adjusted EBITDA may not be comparable to similarly titled metrics of other companies.

Adjusted EBITDA means net loss before interest income, interest expense, other (income) expense net, provision for income taxes, and depreciation and amortization, further adjusted to exclude stock-based compensation, payroll taxes on employee stock transactions, restructuring, CEO separation benefits, CEO transition costs, and certain one-time expenses.

Adjusted EBITDA is a non-GAAP measure.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation and the related employer payroll tax expense on employee stock transactions, excludes an item that we do not consider to be indicative of our core operating performance.

Investors should, however, understand that stock-based compensation and the related employer payroll tax expense will be a significant recurring expense in our business and an important part of the compensation provided to our employees.

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

The following table provides a reconciliation of net loss to Adjusted EBITDA (in thousands):

Year Ended December 31,

2023 2022 2021

(In thousands)

Adjusted EBITDA Reconciliation:

Net loss $ (168,472) $ (196,445) $ (236,107)

Add (deduct):

Depreciation and amortization

31,695 27,669 23,531

Interest income (8,805) (3,191) (365)

Interest expense 10,701 10,472 21,531

Provision for income taxes 283 172 56

EBITDA (134,598) (161,323) (191,354)

Stock-based compensation (1)

34,273 46,138 48,802

CEO separation benefits (2)

CEO transition costs (3)

Payroll taxes on employee stock transactions 195 451 1,168

Legal fees reimbursement benefit (4)

— (1,400) (1,204)

Legal settlements (5)

1,340 456 13,389

Restructuring (6)

43,462 896 2,314

Other expense, net

Adjusted EBITDA (55,169) (112,454) (126,908)

(2) The CEO separation benefit charges for the year ended December 31, 2022 consist of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable to Julie Wainwright pursuant to the Separation Agreement.

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The CEO transition charges for the year ended December 31, 2023 consists of retention bonuses for certain executives incurred in connection with our founder's resignation in 2022.

(4) During the year ended December 31, 2022, we received insurance reimbursement of $1.4 million related to a legal settlement expense.

(5) The legal settlement charges for the year ended December 31, 2023 reflect legal settlement expenses arising from the settlement of two former employees’ individual claims and California Private Attorney General Actions initiated against the Company on behalf of such former employees and those similarly situated.

The legal settlement charges for the year ended December 31, 2021 reflect legal settlement expenses arising from the settlement of a putative shareholder class action and derivative case.

(6) Restructuring for the year ended December 31, 2023 consists of impairment of right-of-use assets and property and equipment, employee severance charges, gain on lease terminations, and other charges, including legal and transportation expenses.

Restructuring for the year ended December 31, 2022 consists of employee severance payments and benefits.

Restructuring for the year ended December 31, 2021 consist of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse.

Material Contractual and Other Obligations

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As of December 31, 2023, our cash requirements related to our Convertible Senior Notes that are included on our balance sheet and the related periodic interest payments were $480.7 million, of which $8.1 million is expected to be paid within the next 12 months.

Our 2025 Notes will mature on June 15, 2025, unless earlier redeemed or repurchased by the Company or converted and our 2028 Notes will mature on March 1, 2028, unless earlier redeemed or repurchased by the Company or converted.

On February 29, 2024, we entered in an exchange agreement with certain holders of our Notes (see Note 16 – Subsequent Events for further information).

• Non-cancellable purchase commitments.

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Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

Convertible Senior Notes

In recording our convertible debt instruments for the years ended December 31, 2021 and December 31, 2020, we separately account for the liability and equity components by allocating proceeds between the liability component and the embedded conversion options, or equity components.

We allocate the debt components of the instruments on the basis of the estimated fair value of a similar liability that does not have an associated convertible feature and the remaining proceeds are allocated to the equity component.

The allocation was performed in a manner that reflects our non-convertible debt borrowing rate for similar debt.

The fair value borrowing rate is considered a critical estimate because the judgment in assessing an interest rate that would be available to the company of a similar debt instrument that does not have a conversion feature.

For the 2025 Notes with a principal amount of $172.5 million, an interest rate of 5.67% was used to compute the initial fair value of the liability component of $152.7 million.

For the 2028 Notes with a principal amount of $287.5 million, an interest rate of 7.18% was used to compute the initial fair value of the liability component of $191.3 million.

As disclosed in Note 2—Summary of Significant Accounting Policies, this critical accounting estimate was not necessary for the fiscal year ended December 31, 2022 as a result of the adoption of ASU 2020-06.

For the year ended December 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results.

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See Note 2, “Summary of Significant Accounting Policies” to our financial statements included elsewhere in this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

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Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis